Hazelle
in Memos & Musings · 2 min read
We have an old but still valuable YouTube video that we highly recommend for income investors to watch. If you are new to income investing or REITs investing, the video will be useful for you if you hasn’t already watch it. It highlights some of the hard truths of investing in REITs. If you are already a seasoned investor, we are sure it will speak to you.
Many investors are often presented with overly optimistic scenarios when it comes to income investing in the financial media, only to be rudely awakened by situations like the current state of REITs where many of the individual REITs are nearing their Covid lows or even below that. The iEdge S-REIT Leaders Index is now sitting nicely at the 1000 level. Whether you are looking at the past 5 years or further out in time, we can understand how most REITs investors who bought into this ETF should be feeling in the past number of years.
It is easy to blame the company, the CEO, the macroeconomic conditions, or the analysts for your investment outcomes. Or maybe we should quit playing the victim and to be aware that it is in fact normal for sectors like REITs to experience cycles and reasonable drawdowns from time to time. (Likewise for the Singapore banks which most investors are very bullish on still) As investors, we have to do our own due diligence, not just in assessing the companies but also the market conditions and we make our own calls. Ultimately we are the ones that decide which stock to buy and at what price. Take responsibility for our own decisions.
Videos that caution income investors or discuss managing downside risks often get lesser views, while those boasting about six-figure dividends a year get many more. Most people are interested in the potential gains but not in learning how to achieve them sustainably, which will eventually backfire one day.
Often, some income investors focus solely on dividends, disregarding the capital at risk. As long as they receive high-yield dividends year after year, they don’t mind if their principal suffers losses. Many of these investors neglect fundamental and technical analysis, relying solely on high yields as their criterion.
This approach might work for some, but it may not suit everyone, including us. We believe a more sustainable strategy for income investing also involves achieving long-term growth while maintaining a healthy yield, i.e. looking at total returns. Not everyone has the luxury of starting with a large amount of money or a high-paying job, and we don’t think we would take that approach even if we did. At some point, you may need to liquidate some holdings, and you’ll want your principal to have grown meaningfully.
There is no free lunch in the world. Income investing isn’t an ATM that magically prints money without putting your capital at risk. Don’t take what you see at face value. To mitigate downside risks in dividend investing, employ fundamental and technical analysis to identify better-performing companies and buy them at ideal entry points where the risk-to-reward ratio is favorable. While this doesn’t eliminate the possibility of paper losses, but it makes the investment outcomes often more manageable compared to investors who skip them. And more importantly, think of strategies that can get you ahead eventually when the dust settles. Bear markets have always made us the most amount of money, just that most investors don’t know it at that point in time.
All market suffering is caused by ignorance. If you choose the easy route of simply picking some high-yield stocks and investing in them without further thought, life may eventually become hard. If you choose to learn the harder things, stay opportunity-minded and get on with it, life will usually get easier later on. Markets are tough for the average investor. It’s even tougher if you stay ignorant and solely problem-minded. At The Joyful Investors, we tell you what you need to hear, not what you want to hear.
About Hazelle
Chief trainer of The Moneyball Investors Playbook program and founder of The Joyful Investors, a financial education firm that seeks to help avid investors learn to invest better and make the journey a joyful one. I graduated with a first class honors in Bachelor of Accountancy from Nanyang Technological University (NTU) and started my auditing career in one of the Big Four. I believe that once we know how to build our wealth sustainably, we can then live our best lives ever.
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This document is for information only and does not constitute an offer or solicitation nor be construed as a recommendation to buy or sell any of the investments mentioned. Neither The Joyful Investors Pte. Ltd. (“The Joyful Investors”) nor any of its officers or employees accepts any liability whatsoever for any loss arising from any use of this publication or its contents. The views expressed are solely the opinions of the author as of the date of this document and are subject to change based on market and other conditions.
The information provided regarding any individual securities is not intended to be used to form any basis upon which an investment decision is to be made. The information contained in this document, including any data, projections and underlying assumptions are based upon certain assumptions and analysis of information available as at the date of this document and reflects prevailing conditions, all of which are accordingly subject to change at any time without notice and The Joyful Investors is under no obligation to notify you of any of these changes.
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